A gateway for global
Spoke to Stephen Phillips, Director General at InvestHK about Hong Kong’s role in attracting foreign direct investment into Asia.
When asked what makes Hong Kong the best place in the world to invest, Director General at Invest Hong Kong (InvestHK) Stephen Phillips points to its geographic positioning in the heart of Asia, the fusion of Eastern and Western culture, the melting pot of highly educated talent, and its proximity and connection to Mainland China.
The investment promotion agency of the Hong Kong Special Administrative Region ( HKSAR) has been headed by Phillips for the past nine months — one of the highest positions in the Hong Kong Government that is open to expatriates.
Phillips has worked in Hong Kong on and off since 1989 — initially with Barclays Merchant Bank (now Barclays Investment Bank) in aircraft financing and structured project financing. Since then, he has had stints at Deutsche Bank, co-founded a tech startup in Hong Kong, worked for the UK government and the China-Britain Business Council. He’s also an avid fan of scuba diving in the tropics (he says his reluctance to cold water rules New Zealand out).
Phillips says the most notable change he has witnessed in Asia over past decades is the rise of China and the growth in other countries. But he says China is still not well understood by the rest of the world.
“The level of sophistication many of the businesses in China have is much higher than international counterparts recognise. It continues to transform at a very fast pace,” he says.
“There are also other economies in the region that have grown strongly. The Philippines is one example that has had robust growth for quite a period of time. There are lots of bright patches across the region.”
Hong Kong — which is part of China under the “one country, two systems” principle — has distinct advantages for attracting investment, including operating with a very strong rule of law based on English common law, independence of the judiciary, a simple tax system, and world-class intellectual property protection.
“This can’t necessarily be said of the other cities in the region,” says Phillips. “It’s the certainty that Hong Kong offers business that I think sets it apart from other cities across Asia — not just China.”
That said, Hong Kong is navigating its own challenges. Recent data from the United Nations Conference on Trade and Development shows the flow of foreign investment into Hong Kong has fallen over the past few years — from US$174b in 2015 to US$108b in 2016, which analysts attribute to the obstacles presented by crippling property prices, a constrained domestic market, and a lack of competition in some sectors.
But Phillips points out that the number of international and Mainland companies investing in Hong Kong continues to track upwards, and that capital flows can be misleading.
“At a fundamental level, from what we see, investment going into Hong Kong — where people are doing business and generating jobs — continues to track upwards. Tracking capital figures on a year-on-year basis can look a bit bumpy,” he says.
The transformation and growth in cities across China is remarkable on a global scale, and in recent years Shenzhen, Shanghai, Beijing and Chengdu have taken much of the limelight away from Hong Kong. But Phillips says the big difference between the fast-growing cities on the Mainland and Hong Kong, is that cities in China are still very focused on the domestic market and the surrounding hinterland, whereas Hong Kong remains one of the most international-focused cities in Asia.
“If companies are looking at a particular geographic market within China, then establishing a base in one of those cities might make sense,” says Phillips.
“But if they’re looking at a much bigger picture — at the whole Asian landscape — then Hong Kong is a great entry point to not only China but also the countries in Southeast Asia, Japan, Korea, and beyond.”
Hong Kong’s historic role as an intermediary for inbound investment into China from around the world continues to be important. In addition to this, the growth in the Mainland’s economy has seen Hong Kong’s role as an outward stepping stone for Chinese companies to access a global market become increasingly important for InvestHK. The ambitious Greater Bay Area initiative has been put in place by the Chinese Government, aiming to link Hong Kong, Macau, and nine cities in Guangdong Province in an integrated economic and business cluster.
The 11 cities in the region have a combined population of close to 68 million people — greater than the world’s largest city cluster of 44 million in Tokyo — and a GDP of around US$1.4 trillion.
All cities in the Greater Bay will be within one hour’s travel of each other, with transport infrastructure under way including a 55km Hong Kong– Zhuhai–Macau bridge-tunnel system opening this year that will cut drive times from up to three hours to just 30 minutes, and a Guangzhou– Shenzhen–Hong Kong express rail link.
“The Greater Bay offers a very dense patch of the world with some of the highest GDP per capita in China — it is very attractive commercially, and this connectivity will help ease the way to do business,” says Phillips.
“The Greater Bay will allow companies to tap into the depth of financial and professional services, the innovation taking place, and the intellectual property environment in Hong Kong — and combine that with the scale of manufacturing and